Most states have laws against usury, or excessive interest. Alabama’s Small Loan Act of 1959 caps the interest rate on traditional small, short-term loans at 3 percent a month, or an annual percentage rate (APR) of 36 percent. But more recent laws covering payday and auto title lenders allow APRs many times higher than that. For payday loans, the interest rates can go as high as 456 percent a year. Today, 20 states either have banned high-cost payday lending or strictly regulated the practice. (Click here for a PDF version of this bill overview.)

Alabama lawmakers have granted exceptions for certain products, including payday and auto title loans, claiming these are emergency loans for those who can’t get conventional credit. These high-interest loans take as much as $100 million annually in fees from vulnerable Alabamians, trapping many borrowers in a debt cycle that exacerbates poverty and hurts the state’s economy. More than 54 percent of payday borrowers pay more in fees than the original loan amount, a state database shows.